The payments business of banks are now “increasingly being eaten away” by smaller and more nimble players in the financial technology (fintech) space, representatives from financial software company Finastra shared in an interview with Newsbytes.PH.
To avoid being left behind in this area, Finastra recommends drastic modernization and innovation measures that will enable banks to protect their revenue stream.
One indicator that demand banks to take action is the significant shift in consumer behavior, especially in the Philippines where users prefer digital wallets like GCash and Maya, considered as a main driver of digital payment adoption in the country.
“If historically banks were only speaking about cloud (technology), now they are starting to implement. Now we see that more and more banks are moving into the cloud and putting their core services, including the payment system, in the cloud. The main reason for this kind of change is that they are starting to trust and believe the cloud vendors who are investing billions in security,” said Finastra Apac managing director of sales and payments Tal Weiser.
Beyond the investments on cloud infrastructure made by providers, banks are now taking steps on their digital journeys to offset costs previously derived from legacy systems, gain faster adoption of innovations, and overall increase the efficiency of their processes. Weiser adds that this behavior is what’s fueling the trend on cloud migration within the traditional banking industry.
“They’re in different phases of the journey. They need to do an evaluation and understand whether they need to invest, it’s very hard to compare how much they will invest. We all understand that there is a need to modernize the system and not continue working this way because the competition will beat you. You need to be able to collaborate and meet to get into the journey,” Weiser continued.
According to consultancy firm Deloitte, the creation of a cloud core banking system is only a starting point. Banks will still need to then integrate their entire ecosystem of processes and components to ensure that all the functionalities available through their traditional core banking systems will still be accessible via cloud.
“We are seeing that blockchain or distributed ledger technology is also being used for the cross-border payments space. Embedded finance will be another aspect here and I think these all comes together with BSP’s (Bangko Sentral ng Pilipinas) Open Finance Framework where different parties can build a partnership. This all will evolve. With all this technology, the regulatory, and the push from the Central Bank, we will see more and more use cases shaping up the future of payments in the Philippines,” explained Dheeraj Joshi, Finastra regional head for payment solution consulting.
The Open Finance Framework which Joshi cited was launched by BSP in June 2021 that allowed banks and third-party providers to collaborate in the generation of customer centric banking products and services, initially participated in by entities like GCash, Maya, Landbank’s Overseas Filipino Bank, Tonik, and GoTyme.
This effort is part of the larger overarching Digital Payments Transformation Roadmap where BSP hopes to achieve the volume of average monthly digital payments to hit 50% by 2023.
Weiser calls this the “perfect storm” for the financial industry, attributable to the consumer demand shifts, competition and business demand, as well as initiatives spearheaded by governing bodies.
Finastra says it is in a position to help banks meet their growing needs for modernization and payments technology solutions, and instead of competing against fintechs, Weiser sees an opportunity for banks to work together with fintechs in pushing the industry forward.
“They (banks) will need to be smarter with the way that they are implementing their services and they will need to be fast to make sure that they are able to build the right infrastructure to serve those future needs that nobody knows today. They need to come up with a very strong infrastructure that will be future-proof. They need to invest now to be ready in the next three to four years,” he explained.
Meanwhile, Joshi placed more emphasis on the significant role of user experience in shaping the future of digital payments. He called for banks to provide a better platform for users in terms of convenience, information, and ease-of-use.
“I think the customer experience is very important, especially when you are dealing with millennials or digitally-native customers. The overall experience from initiating the payments to the other person receiving the payment, how the bank takes you in that journey is very much important because there’s no loyalty today. If another player is able to offer better services, customers are going to use that entity,” he concluded.
